Netflix to increase monthly fees by 25 percent in May

Netflix is price of its most popular plan by 25% for all streaming customers. (Jonathan Nackstrand / AFP / Getty Images)

Netflix is about to hike the price of its most popular plan by 25% for all streaming customers, to $9.99 per month for the two-stream HD service.

Starting in May, the No. 1 streaming service's standard HD service for those previously paying $7.99 monthly will increase by $2, based on member billing periods. "Impacted members will be clearly notified by email and within the service so that they have time to decide which plan/price point works best for them," Netflix said in a statement.

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Later in April, Netflix customers in the U.K. will begin to be "ungrandfathered" from previous pricing plans, and will be charged £7.49 per month (currently about $10.57) for the two-stream HD service.

Netflix previously announced that starting in the second quarter of 2016, a "substantial number" of U.S. subs will see the price hike. They will have the option of continuing at $7.99 for a single-stream, standard-definition plan, or keep the HD service for $9.99 a month.

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"Given these members have been with us at least two years, we expect only slightly elevated churn," Netflix CEO Reed Hastings and CFO David Wells wrote in a letter to shareholders in January.

In October, Netflix boosted the price of the two-stream HD plan to $10 for new members in the U.S., Canada and Latin America. "Last October's price increase for newer members included a one-year hold and will go into effect in October of this year," Netflix said. Even at $9.99, Netflix's standard plan is cheaper than Hulu's commercial-free subscription tier ($11.99 per month), as well as HBO Now ($14.99) and Showtime's over-the-top service ($10.99).

About 17 million Netflix subscribers will be affected by the HD plan price hike that commences in May, according to UBS analyst Doug Mitchelson. But the firm's research indicates Netflix "has strong pricing power" and "we believe incremental price increase churn will be low (3%-4% of the cohort over 2Q/3Q)," Mitchelson wrote in a research note earlier this week.

Netflix ended 2015 with 74.76 million streaming customers worldwide, including 44.74 million in the U.S.

In the first quarter of 2016, the company expects to add a net 4.35 million international subs and 1.76 million in the U.S. UBS's estimates are in line with those forecasts, projecting 1.75 U.S. net adds and 4.35 million overseas. For Q2, the firm projects 450,000 total net U.S. subscriber additions and 2.9 million net adds internationally.

While 41% of respondents in UBS's November 2015 survey said they were not willing to accept any price increase for Netflix, Mitchelson expects churn to be relatively low given customer loyalty and the relatively modest $2 increase. "Consider pay TV costs have been rising 3%-5% annually and the industry is now losing only ~1% of customers each year, relative to 68% of pay TV customers in our survey indicating no tolerance for price increases," the analyst noted.

Netflix is scheduled to release Q1 earnings results on April 18 after market close.